In re Omnicom Group, Inc. Securities Litigation

Omnicom Group, Inc. (defendant), a global marketing and advertising company, invested in internet marketing and advertising companies. In 2000, the value of Omnicom’s investment in the internet marketing and advertising companies declined; however, Omnicom determined these losses were not reportable. In 2001, Omnicom and Pegasus Partners II, L.P. created a new company, Seneca, owned by both companies. While the publicly stated motivation for the transaction was to maximize efficiencies, media reports at the time of the transaction discussed the declining value of Omnicom’s internet marketing and advertising investments and Omnicom’s interest in getting those liabilities off the company’s books. In June 2002, Omnicom filed its Form 8-K, which included reference to the resignation of Robert Callander. Callander had served as an outside board member and as the chair of the Omnicom’s audit committee. Following the release of the Form 8-K, numerous press outlets reported on Callander’s resignation and highlighted his concerns about the lack of disclosures made by Omnicom. After the reports, Omnicom stock price dropped by 25 percent. On June 13, 2002, as Omnicom’s stock price fell, the New Orleans Employees’ Retirement System (the Retirement System), which owned Omnicom stock and experienced the loss of value in June 2002, filed suit. In May 2003, the Retirement System amended its complaint. Omnicom moved to dismiss the lawsuit. The district court dismissed multiple claims but denied the motion to dismiss with respect to fraud claims regarding the Seneca transaction. The Retirement System argued that Omnicom’s multiple failures to properly account for the losses sustained by its internet companies before, during, and after the Seneca transaction led to the decline of Omnicom’s stock value in June 2002. After discovery, Omnicom moved for summary judgment. The district court granted summary judgment, explaining that the Retirement System had failed to provide sufficient evidence that fraud and misrepresentations involving the 2001 Seneca transaction had caused the damaging decline of Omnicom’s stock price in 2002. The Retirement System appealed.